Necessity is the mother of invention The lottery loans of Holland during the War of the Spanish Succession Matthijs Hoekstra 3006476 History: Cities, states and Citizenship First reader: Oscar Gelderblom Second reader: Joost Jonker Introduction 3 1. The first lottery loans: England and the Estates-General 6 2. The first lottery loan of Holland 15 3. The prize ledgers 25 4. The investors of the lottery 37 5. The redemption of the lottery of 1711 43 Conclusion 52 Literature 53 Appendix: Investors of the lottery 58 - 2 - Introduction At several moments in the 18 th century Holland raised capital through lottery loans. This thesis examines what lottery loans are, why they were organized, and who invested in them. Lottery loans haven’t received much attention in debates about the development of early modern public finance. In his history of the lotteries of the Low Countries Fokker wrote in 1862 that lotteries organized by the Estates were a sign of the moral decline of the Republic. Where first lotteries had been used to raise money for charity, now the Estates used lotteries for their own benefits. 1 In his seminal work The Financial Revolution in England Dickson wrote that an ‘addiction of contemporaries to gambling on a massive scale’ was a contradictory trend to the progress in finance made in the 17 th and 18 th century. 2 Murphy, on the other hand, claims the boundaries between gambling and investment remained indistinct in the late 17 th century, and therefore connects the lotteries with the financial revolution. 3 Gelderblom and Jonker examined how market forces shaped Holland’s issuing policy. 4 A group of wealth owners was capable of playing the market, looking for the best investment opportunities. From the 1670s onwards the Estates were forced to follow the movement of bond prices on the market when they sold new debt issues, and on occasion incentives had to be offered to investors. 5 The lottery loans were designed in such a way that they acted as incentive to invest . Studying the lottery loans thus can learn us more about the interaction between the market and the authorities, and the way the authorities tried to attract calculating investors. Why were lottery loans organized? This thesis argues that the lottery loans were a part of the innovations made by states to fill the public coffers. Between 1689 and 1713 the Republic was involved in almost continuous warfare, causing Holland’s debt to increase from 160 million to almost 300 million in 1713. 6 To raise the large amounts of capital required, incentives had to be offered to the investors. Lottery loans offered these incentives. The thesis will show that the lottery loans were used in times of dire financial needs, when all other forms of raising capital were exhausted. The sources suggest that in 1711 the 1 G.A. Fokker, Geschiedenis der loterijen in de Nederlanden (Amsterdam: Muller, 1862) 120 onwards. Fokker had a political goal with his worked, he hoped to convince the government to abolish the Dutch national lottery. 2 P.G.M. Dickson, The Financial Revolution in England, 1688-1756 (London: MacMillan, 1967) 45. 3 A.L. Murphy, ‘Lotteries in the 1690s: investment or gamble’, Financial History Review 12 (2005) 228. 4 O. Gelderblom and J. Jonker, ‘A conditional miracle. The market forces that shaped Holland’s public debt management, 1514-1713’. Working paper. 5 Gelderblom and Jonker, ‘A conditional miracle’, 29. 6 Ibidem, 28. - 3 - Estates of Holland found themselves to be in a situation in which they couldn’t raise the capital they needed against the usual conditions. Investors demanded higher returns than the returns on the ordinary securities of Holland. The ordinary bonds of Holland paid 4% interest, but due to the 100e and 200e penning this was reduced to 2.5%. In response to this demand the lottery loans were organized, which were in two ways interesting for the investors. First, the lottery loans gave investors the chance of winning large prizes. And second, the blank tickets were more profitable than ordinary obligations of Holland. Because the small prize obligations were exempted from the 100e and 200e penning , they paid 4% interest instead of the 2.5% of other obligations. What are lottery loans Lottery loans differ from traditional lotteries. In traditional lotteries most players lose their money, while a few players win large prizes. In a lottery there are also prizes to be won. But the difference with traditional lotteries is that the holders of blank tickets also get their money back. The tickets were converted in interest bearing obligations, to be redeemed within a certain period varying between 1 and 32 years. This means two things: first, the total cost of the lottery is higher than the amount raised . For example, the first lottery of Holland raised 6 million guilders, but the province promised to repay over 9 million guilders to the investors. 7 Million guilders to the holders of the 58,651 blank tickets, who were promised f. 120 in return for their f. 100 ticket, and 2 million guilders to the owners of the 1349 large prize tickets. Second, since all investors get repaid within a number of years, they become creditors to the state for a long period. For all reasons investors could wanted to get rid of their obligations. So another feature of the lottery loan is that there was a secondary market in lottery tickets for investors who wanted to get rid of their tickets. Sources Archival records play an important role in this thesis. The archives of the Estates of Holland and the Gecommiteerde Raden, the daily government of Holland, will be used to examine the motives for organizing a lottery, and the way the lottery was organized. The prize ledgers of the Finance Office of Holland were a crucial source. These ledgers contain information on who owned the tickets and when the tickets were redeemed. Only a small part of the prize ledgers survived. For the first lottery loan of Holland information can be found on the small prize obligations of class 24-30 (25% of all small prize obligations) and the large prize obligations of class 3-30 (97% of all large prize - 4 - obligations). Of class 25-30 of the small prize tickets I have entered all ticket holders in one file. The result is a list of 6371 different ID numbers, owning a total of 16,323 of the 58,651 small prize tickets (27,83%). The large prize ledger contains all large prize holders of class 3-30. Put together in a file, the result is a list of 1778 ID numbers with a value of f. 1,973,900, 98,7% of the large prize money. The ledgers makes it possible to study the investors: who were they and what were their motives for investing in the lottery? The ledgers also make it possible to study the distribution of the tickets over the investors. For other lotteries no prize ledgers are available. That is why this thesis will focus on the first lottery loan of Holland of July 1711. Since the conditions of the following lotteries in 1712 and 1713 were almost the same as this lottery, I think it is safe to say that they attracted the same kind of investors as the first lottery. Outline In the first chapter we will look at the lottery loans of England and the Estates-General. We will see that after the successful ‘ Million Adventure’ of 1694 and the failed Malt lottery of 1697 the lottery loan became regularly used tool of the English state from 1710 onwards. The first chapter will also discuss the lottery loans issued by the Estates-General between 1709 and 1713. The second chapter tells the story of the first lottery loan of Holland. It will discuss the motives to organize the lottery, the design of the lottery, and how it was organized. The third and fourth chapter will take a closer look at the investors. The third chapter deals with the investors of the lottery. How many people invested in the lotteries, how much did they invest and what was the share of the tickets owned by women and institutions? The fourth chapter takes a closer look at some of the largest investors and explores their motives to invest in the lottery. We will see that many the large investors were closely tied to the regime and that some even played a role in the organisation of the lotteries. The last chapter focuses on the redemption of the lottery. The tickets of the first lottery were not redeemed according to the schedule. Why they were not redeemed and what happened instead will be discussed in this chapter. - 5 - 1. The first lottery loans: England and the Estates-General Gambling played an important role in the early modern world. It was ‘an age of wagers on the lives of the lives of private and public men, the chances of war, and the occurrence of natural events, as well as the issue of a horse-race, the fall of dice, the turn of a card. ’ 7 Lotteries were an important part of the world of gambling. The origins of the lottery in the Low Countries lay in 15 th century Bruges. 8 It was a tradition to appoint someone to the office of scroderie through a lottery under the male citizens. 9 For unknown reasons other prizes were made available in the early 1440s, and inhabitants from other cities became allowed to participate in the lottery. This can be seen as the start of the lottery in the Low Countries.